Dividing cryptocurrency in a NSW property settlement will likely trigger Capital Gains Tax (CGT) implications for both parties. The key complication is determining the cost base of the cryptocurrency being transferred, and understanding how different types of crypto transactions are taxed.
How is cryptocurrency treated for tax purposes?
Cryptocurrency is treated as a Capital Gains Tax (CGT) asset. This means any profit made when you dispose of it – including transferring it to your former partner in a property settlement – is potentially taxable. Rewards from staking crypto are considered ordinary income and taxed accordingly.
What about crypto acquired for less than $10,000?
If you acquired the cryptocurrency for less than $10,000 as a personal use asset, you cannot deduct any capital losses made on it for CGT purposes. This means you can’t offset any loss from the transfer in a property settlement against other capital gains.
What if the crypto was part of a chain split?
If you receive new cryptocurrency as a result of a chain split, you will need to calculate a capital gain or loss when you eventually dispose of it. Importantly, the cost base of the new crypto asset you receive from a chain split is zero ($0). This means any subsequent sale will be taxed on the full market value at that time.
The valuation problem
Determining the value of cryptocurrency at the specific date of transfer in a property settlement can be challenging. Cryptocurrency values are highly volatile, and establishing an accurate valuation for CGT purposes requires careful record-keeping and potentially expert evidence. The Australian Taxation Office (ATO) expects you to be able to substantiate your valuation.
Questions to consider
- What records do I have to prove the original purchase price and date of my cryptocurrency?
- How will the transfer of cryptocurrency affect my overall capital gains position for the year?
- Should I obtain a formal valuation of my cryptocurrency holdings for the purposes of the property settlement?
This information is general in nature and does not constitute legal
advice. For advice specific to your situation, contact JB Solicitors.